Beware of Tories Bearing Gifts

Unlike the Lib Dems who announced a full tax package [PDF link] at the same time covering who would gain and where this was being paid for, the Tories have announced a cut without the consequences. There was great fanfare last night that seven out of ten would benefit from them halving the Labour increase in National Insurance conributions (NIC) planned for April 2011. But there is no announcement as to where or when they will make up the £5bn shortfall.

There are two possible alternatives that George Osborne may, or more likely not, reveal in the Chancellors debate at 8pm this evening.

• Fund it by spending cuts
• Fund it my increasing VAT and removing VAT exemptions

If it is former cuts into what? Will these cuts impinge on the poorest? The very people that the Tories are trying to tell us they are helping.

If it is the latter, while your money would have more value at point of payment, it would lose it at the shops. If the 20% VAT that has been brandied about does come in, the poorest won't be net gainers but net losers. As well as the only 0.5% hike in NIC they will also be suffering from the VAT shift.

The Tory excuse is that NIC is a tax on business as David Cameron said on yesterday's Politics show:

"Remember it's a tax not just on people's incomes but it's also a tax on every business who employs anybody or thinks of employing anyone new."

Only the Lib Dems are offering a clearly fair taxation on the lowest paid. The increase in the personal tax allowance to £10,000 lifts 4 million out of income tax altogether. There is incentive for people to get back to work as the money is theirs rather than returning to the exchequer.

Labour have effectively frozen the personal allowance to get more tax out of us, the Conservatives are only going half the increase and possibly introduce more indirect taxation to hit the poor elsewhere, possibly more severely.